Letter-of-credit advice: ruling eases liability.

LOS ANGELES -- A decision this month by the U.S. Court of Appeals for the Ninth Circuit should eliminate bankers' concerns about liabilities when they advise on letter-of-credit transactions, the law firm of Jones, Day, Reavis & Pogue said.

In a case involving an alleged associate of the late Philippines leader Ferdinand Marcos, the court limited bank's liability on a letter of credit that, by a Philippines government decree, was not consummated.

"Banks in the U.S. that advise but do not confirm letters of credit issued by banks in foreign countries have been seriously concerned about their liability under U.S. law," said Jones Day attorney Joanne M. Frasca, who successfully defended Philippine National Bank in the case.

Seen as Easing Worries

"These banks have feared that they may be held liable to pay an L/C which they merely advised, even though the bank that issued the L/C was ordered not to pay by a valid foreign government's decree," Ms. Frasca said. "This decision should eliminate that concern."

The decision also should comfort U.S. banks that issue letters of credit, she said, in complying with economic sanctions initiated by the U.S. government.

In the case heard by the appeals court, Vincente Chuidian, a Philippines national now living in California, was sued in 1985 by the Philippine Export and Foreign Loan Guarantee Corp., an agency of the Manila government, for allegedly defaulting on a $25 million government-backed loan to a semi-conductor company he owned in the Philippines.

Overtaken by Political Events

After a series of suits and countersuits, a settlement was reached, and the Philippine National Bank in Manila issued Mr. Chuidian a $4.6 million letter of credit, with its Los Angeles branch named as the paying bank.

After the Marcos regime was overthrown, Corazon Aquino's administration froze the payments, suspecting the letter of credit was part of a payoff to prevent Mr. Chuidian from revealing damaging information about his business dealings with Marcos.

Mr. Chuidian responded to the freeze order by suing the bank in Los Angeles.

A U.S. District Court refused to force the bank to honor the letter of credit because it was issued in the Philippines and not confirmed by a U.S. bank. The court reasoned that it was therefore subject to Philippines law.

Possible Appeal

The appeals court upheld the district court's ruling, finding that an unconfirmed, irrevocable letter of credit issued by a Philippines bank, the payment of which was frozen by the Philippines government, was unenforceable in the United States, though the paying bank was a U.S. branch of the same institution.

Ms. Frasca said Mr. Chuidian could apply for a rehearing before all the judges of the ninth circuit. After that, his only other option would be to seek discretionary review before the U.S. Supreme Court.